Zynga to buy Finland's Small Giant Games for $560 million

By Vibhuti Sharma and Liana B. Baker

(Reuters) - FarmVille-maker Zynga Inc (ZNGA.O) said on Thursday it would buy a majority stake of Small Giant Games, maker of the popular Android game Empires & Puzzles, for $560 million in a move to strengthen its mobile portfolio.

It is Zynga's largest deal to date, Chief Executive Frank Gibeau said in an interview, topping the $527 million acquisition of the UK developer Natural Motion in 2014.

Zynga also raised its financial forecast on Thursday, sending its shares up 1.67 percent in after-market trading, to $3.65.

Zynga sees potential in expanding Helsinki, Finland-based Small Giant's Empires & Puzzles by bringing it to countries in Asia where role-playing games are popular, with Gibeau citing Japan, South Korea and China as potential markets.

He said the 18-month-old game is profitable, making money from player purchases of items in the game plus a small amount of advertising. The acquisition is expected to add to Zynga's earnings in 2019.

Zynga is looking for new games to spark growth after a challenging year. Gibeau said the company was finally emerging from its turnaround. Its shares are down 10 percent year-over-year.

The cash-and-stock deal for Small Giant, which is expected to close on Jan. 1, follows Zynga's announcement last year to buy Peak Games, home to successful games such as "Spades Plus" and "Gin Rummy Plus," for $100 million.

Zynga said it would buy 80 percent of privately held Small Giant now for $560 million and the remaining 20 percent over the next three years based on profit goals.

Small Giant has raised just under $50 million in venture capital funding and is backed by EQT ventures.

Zynga raised its fourth-quarter revenue forecast, crediting the popularity of its games "Words With Friends," "Merge Dragons!" and "CSR2" during the holiday season.

It now sees revenue of $243 million, up from an earlier expectation of $235 million, while the net loss forecast was lowered to $1.5 million from an earlier outlook of $2 million.

(Reporting by Vibhuti Sharma in Bengaluru and Liana B. Baker in New York; Editing by James Emmanuel and Leslie Adler)